The new employment rights taking effect in 2026 and what this means for SMEs

As the new financial year begins, it brings with it a fresh wave of employment law changes – from additional compliance demands and increased costs to heightened risk for employers. As a result, many businesses are reassessing not only their approach to compliance but also how they structure and scale their workforce.

To take a deeper dive into these developments, we spoke to Lilia Stoyanov, CEO of Transformify [TFY], a global contractor management platform that helps businesses hire, manage, and pay global teams, contingent workers, and independent contractors. Here, Lilia outlines the most substantial changes on the horizon, how they are likely to affect businesses and why many organisations may shift toward more flexible workforce models as a result.

The UK is undergoing significant shifts in employment regulation. What do you see as the most consequential changes for businesses within the next 12 months?

From my perspective, the most consequential change is not one single rule, but the combined effect of several reforms arriving in waves. We already have day-one Statutory Sick Pay from 6 April 2026, the removal of the lower earnings threshold for SSP, new day-one rights for paternity and unpaid parental leave, the launch of the Fair Work Agency from 7 April 2026, and a higher National Living Wage of £12.71 from 1 April 2026. Then, from 1 January 2027, the qualifying period for ordinary unfair dismissal protection is due to fall from two years to six months. Taken together, that means higher cost, more enforcement, more process, and materially more risk around permanent hiring.

For businesses, the practical impact is that employment is becoming more regulated at exactly the moment when many companies want more agility. I believe that will push boards and management teams to rethink workforce design. In many cases, they will keep a smaller core employee base and increase the proportion of independent contractors and external specialists, because that model is often faster, less administratively painful, and easier to scale up or down when demand changes.

Do you think SMEs will be disproportionately affected compared to large enterprises? If so, how?

Yes, I do. Large enterprises may dislike the added cost and complexity, but they usually have in-house legal, HR, payroll, and compliance teams. SMEs often do not. So, when sick pay rules change, record-keeping obligations tighten, enforcement becomes more centralized, and dismissal risk rises, a small company feels that operational burden much more acutely. Acas, business-facing government guidance, and employer groups have all emphasized that these reforms require preparation across contracts, payroll, leave policies, and manager capability. CIPD has also urged employers to move from speculation to preparation, which is especially relevant for smaller firms with limited internal capacity.

In reality, SMEs are the most likely to respond by becoming more selective about who they hire as employees. They will still need talent, but they may increasingly prefer independent contractors, project-based specialists, or international freelancers, because those models can reduce fixed overhead and simplify workforce planning. That does not remove compliance responsibilities, of course, but it often reduces the friction compared with adding permanent headcount.

How might these changes reshape employer attitudes toward permanent employment versus more flexible models?

I think employer attitudes will become more cautious about permanent employment, especially for roles where demand is variable or skills are needed only for a project or growth phase. When employment protection expands and enforcement strengthens, every permanent hire carries more long-term commitment and more procedural responsibility. At the same time, future reforms around zero-hours and low-hours work are intended to reduce what policymakers describe as one-sided flexibility, including stronger guaranteed-hours and shift-related protections. That will make some traditional flexible domestic labour models more administratively demanding.

My honest view is that this will accelerate the shift toward external workforce. Many companies will increase the proportion of independent contractors because an external workforce is less painful to manage than a larger employee population under increasingly complex regulation. At TFY, we see this not as a retreat from good employment standards, but as a rebalancing of workforce models. Businesses still want top talent; they just want to access it with more flexibility and less fixed employment risk.

Are we likely to see a structural shift toward international contractors as a direct response to UK regulation?

Yes, I think we are already moving in that direction, and UK regulation will accelerate it. The more complex andcostly domestic employment becomes, the more attractive it is for companies to source skills globally through independent-contractor models for functions that can be delivered remotely.

I would not say UK regulation is the only driver. Skills shortages, remote work normalisation, and cost pressure all matter too. But tighter domestic employment rules absolutely strengthen the business case for hiring international contractors instead of adding UK employees. The key point is that companies will not stop hiring; they will change how they hire.

What are the most common compliance mistakes businesses make when hiring internationally?

The biggest mistake is misclassification: calling someone a contractor when, in practice, they are managed like an employee. In the UK context, businesses also underestimate employment-status and off-payroll risks. HMRC’s guidance makes clear that businesses need to assess whether a worker should be treated as employed or self-employed for tax purposes, and off-payroll working rules remain highly relevant when contractors work through intermediaries.

The second common mistake is assuming that “overseas” means “outside compliance.” It does not. Businesses can run into tax, local labour-law, invoicing, social-security, data-protection, sanctions, and permanent-establishment issues if they engage people internationally without a proper framework. Another mistake is using generic contracts copied from the internet that do not reflect the jurisdiction, the scope of work, confidentiality, IP ownership, or the real level of independence in the relationship.

How can companies balance cost efficiency with ethical and legal responsibility when engaging global talent?

The answer is simple in principle: only use a contractor model when it is the right model. If the person is working like an employee, they should not be treated as a contractor just because it is cheaper. Ethical global hiring means fair pay, transparent terms, prompt payments, respect for local law, strong data protection, and clarity about deliverables, ownership, and expectations.

I always say that the best companies use flexibility responsibly. They do not use global talent to strip out responsibility; they use it to build resilient, efficient, international teams.

How is TFY positioned to help UK businesses navigate these changes?

At TFY, we are very well positioned because this is exactly the environment our model was built for. As UK businesses face rising employment complexity, they need practical alternatives: access to vetted independent contractors, cross-border onboarding, compliant engagement workflows, and reliable international payments.

TFY helps companies move from reactive hiring to a structured workforce strategy. If a client decides that a role should be permanent, that is one conversation. But if a role is better suited to an independent contractor, a project specialist, or a global external workforce, we help them do that in a more controlled, compliant, and scalable way. In my view, that is becoming strategically important, not optional.

Can you explain how your platform simplifies global hiring, compliance, and payments in practical terms?

In practical terms, Transformify [TFY] helps companies do three things in one place.

First, we help them find and engage talent — especially independent contractors and external professionals across markets. Second, we help them standardise compliance workflows with structured contracts, onboarding steps, documentation, and classification-aware processes that are far more robust than ad hoc email-and-spreadsheet hiring. Third, we help them manage contractor payments internationally in a simpler, more traceable way, so businesses do not have to patch together multiple local providers and manual finance processes.

What matters most is that we reduce friction. For a UK company under growing employment-law pressure, that means being able to access global talent without turning every hiring decision into a legal and administrative headache. That is why I believe workforce management platforms like TFY become more relevant as regulation tightens: they make flexible, international workforce models easier to execute responsibly.